RBI to implement revised bank leverage ratio norms from April 2027

The Reserve Bank of India (RBI) on Friday announced that the revised leverage ratio framework for banks, based on standards issued by the Basel Committee on Banking Supervision, will come into effect from April 1, 2027.

Under the new guidelines for implementing the 'Leverage Ratio 2017 Standard', domestic systemically important banks (D-SIBs) will be required to maintain a minimum leverage ratio of 4 per cent, while other banks must maintain a ratio of at least 3.5 per cent.

The revised framework is aimed at strengthening the capital adequacy requirements of banks and ensuring that they maintain adequate capital relative to their overall exposures.

𝗦𝘁𝗿𝗶𝗰𝘁𝗲𝗿 𝗻𝗼𝗿𝗺𝘀 𝗳𝗼𝗿 𝘀𝘆𝘀𝘁𝗲𝗺𝗶𝗰 𝗯𝗮𝗻𝗸𝘀

The RBI said branches of global systemically important banks (G-SIBs) operating in India will be required to maintain a leverage ratio of 3.5 per cent, along with the additional leverage ratio buffer applicable to them as G-SIBs.

This will include any supplementary leverage ratio buffer prescribed by the bank's home-country regulator.

"Capital distribution constraints will be imposed on a G-SIB branch which does not meet its leverage ratio buffer requirement," the guidelines stated.

The provision means that branches of globally significant banks failing to maintain the prescribed buffer could face restrictions on capital distributions.

The leverage ratio is a regulatory measure that compares a bank's Tier 1 capital with its total exposure, providing a safeguard against excessive borrowing and balance-sheet expansion.

Unlike risk-weighted capital adequacy ratios, the leverage ratio does not depend on assigning different risk weights to individual assets.

𝗥𝗕𝗜 𝗿𝗲𝗷𝗲𝗰𝘁𝘀 𝗲𝘅𝘁𝗲𝗻𝘀𝗶𝗼𝗻 𝗿𝗲𝗾𝘂𝗲𝘀𝘁

In August, the RBI had issued the draft Reserve Bank of India (Commercial Banks – Prudential Norms on Capital Adequacy) Eleventh Amendment Directions, inviting comments and suggestions from stakeholders.

During the consultation process, several stakeholders requested additional time to transition to the revised leverage ratio framework.

However, the central bank declined to extend the implementation timeline.

"The effective date for implementation of the draft Amendment Directions was specified as April 1, 2027, aligning with the mandate for Basel III compliance, as stated in the Governor's statement dated October 1, 2025," the RBI said.

The central bank maintained that the implementation schedule had already been communicated and was consistent with its broader regulatory roadmap.

𝗕𝗮𝘀𝗲𝗹 𝗜𝗜𝗜 𝗰𝗼𝗺𝗽𝗹𝗶𝗮𝗻𝗰𝗲 𝗿𝗼𝗮𝗱𝗺𝗮𝗽

The revised leverage ratio requirements form part of the RBI's continuing efforts to align India's banking regulations with international prudential standards.

The Basel III framework was developed to strengthen the resilience of banks following vulnerabilities exposed during the global financial crisis.

Its leverage ratio requirements serve as an additional capital safeguard alongside risk-based capital adequacy norms.

By retaining the April 1, 2027, deadline, the RBI has given banks a defined timeline to prepare for the revised requirements.

The framework will apply different minimum leverage ratios depending on the systemic importance of banks, with additional buffer requirements for branches of global systemically important institutions.

Banks will be expected to comply with the revised norms from the notified implementation date.